Saxon Products, Inc., is investigating the purchase of a robotfor use on the company’s assembly line. Selected data relating tothe robot are provided below:

Cost of the robot	$	1,950,000
Installation and software	$	485,000
Annual savings in inventory carrying costs	$	217,000
Annual increase in power and maintenance costs	$	37,000
Salvage value in 5 years	$	77,000
Useful life		5	years

Engineering studies suggest that use of the robot will result ina savings of 32,000 direct labor-hours each year. The labor rate is$14 per hour. Also, the smoother work flow made possible by the useof automation will allow the company to reduce the amount ofinventory on hand by $407,000. This inventory reduction will takeplace at the end of the first year of operation; the released fundswill be available for use elsewhere in the company. Saxon Productshas a 15% required rate of return.

Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determinethe appropriate discount factor(s) using tables.

Required:

1. Determine the annual net cost savings if the robot ispurchased. (Do not include the $407,000 inventory reduction or thesalvage value in this computation.)

2-a. Compute the net present value of the proposed investment inthe robot.

2-b. Based on these data, would you recommend that the robot bepurchased?

3-a. Assume that the robot is purchased. However, due tounforeseen problems, software and installation costs were $82,000more than estimated and direct labor could only be reduced by26,000 hours per year, rather than the original estimate of 32,000hours. Assuming that all other cost data is accurate, what would apostaudit suggest is the actual net present value of thisinvestment?

3-b. Does it appear that the company made a wise investment?

4-a. Which of the following are intangible benefits associatedwith the new automated equipment?

4-b. Based on your analysis in Requirement 3 above, compute forthe president the minimum dollar amount of annual cash inflow thatwould be needed from the benefits in (a) above for the automatedequipment to yield a 15% rate of return.